The recessionary death spiral in health insurance

Anthem (the name adopted by California Blue Cross/Blue Shield when it converted from a non-profit to a for-profit) just raised individual and small-business rates in California by up to 34%. But lest you think that this is a mere case of executives gouging captive customers so they can pay themselves outrageous bonuses, Anthem and its parent company WellPoint have an explanation:

In statements and letters, Anthem and WellPoint have explained what the industry calls a recessionary death spiral: as unemployment and declining wages prompt healthy people to drop their insurance, the remaining risk pool becomes sicker and more expensive to insure, which in turn forces up prices and pushes more people out of the market.

Correct.

And it’s worse than that. Uninsured people cost insured people money through providers’ unpaid care accounts. So the death spiral in the individual market will raise rates in the group market, causing some companies to dump coverage, further increasing the number of uninsured, thus jacking rates up one more notch.

That’s why we need a system in which everyone is insured. And to get to such a system we’re going to have to subsidize those who can’t pay the full freight on their own. All the people trying to stop reform ought to be asked to explain, in words of one syllable, what they plan to do about the problem. They can’t. Which is why the Republican Congressional leadership is trying to weasel out of the proposed health care summit.